STUDY GUIDE FOR COME INTO MY TRADING ROOM phần 9 docx

If you cover up the chart and advance one day at a time, you will recre-ate some of the uncertainty and the psychological pressures of trading; Trade 4: Imclone Systems IMCL—Exit Questio

Trade 4: Imclone Systems IMCL—Entry Question

Imclone is a biopharmaceutical company, working on cancer treatments

Answer on pages 176–177.

Chart Q4-a 26-week and 13-week EMAs, 12-26-9 lines and

MACD-Histogram

Chart Q4-b 22-day and 13-day EMAs, 12-26-9 lines and

MACD-Histogram, 2-day Force Index

Cover this chart with a sheet of paper and move it slowly from left to right, one day at a time Mark entry and exit points and jot down a com-ment about each Later, on the Answers pages, we will review them, and you’ll earn points for each correctly identified exit or reentry point

We went long IMCL in the area marked by an arrow in August Chart patterns and indicator signals can help us decide where to take profits and where to reestablish longs When you look at an old chart, the benefit of hindsight makes it seem very easy to hold for the long haul

If you cover up the chart and advance one day at a time, you will recre-ate some of the uncertainty and the psychological pressures of trading;

Trade 4: Imclone Systems IMCL—Exit Question

entry

long

Chart Q4-c 22-day and 13-day EMAs, channel, 12-26-9 MACD-lines and

MACD-Histogram, 2-day Force Index

Trade 5: Wheat—Entry Question

The rules of technical analysis work in any freely traded market, including stocks, futures, and currencies—it can be applied to most trading vehicles Many popular technical tools were originally developed for commodities and only later migrated to the stock market Answer on pages 180–181.

Chart Q5-a

Chart Q5-b

Trade 5: Wheat—Exit Question

entry long

Chart Q5-c 22-day and 13-day EMAs, channel, 12-26-9 MACD-lines and

MACD-Histogram, 2-day Force Index

The best way to test a trading system is by clicking through your data one day at a time To learn from a chart, cover it with a sheet of paper, moving it from left to right, a day at a time Mark all entry and exit points and jot down a comment about each Later, on the Answers pages, you’ll earn points for each correctly identified exit or reentry point

We went long wheat in the area marked by an arrow in October Use chart patterns and indicator signals to decide where to take profits and to reestablish longs If you cover up the chart and advance one day at a time, you will recreate some of the uncertainties and pressures of trading

Trade 6: Vimpel Communications VIP—Entry Question

Mark at least two trading signals on the weekly and daily charts Answer on pages 184–185.

Here’s another set of charts that reflects the universality of technical analysis The charts show a Russian stock listed on the NYSE—a cell phone company from Moscow I sometimes think that when we trade VIP, comrades Lenin and Stalin take a few spins in their graves

Chart Q6-a

Chart Q6-b

Trade 6: Vimpel Communications VIP—Exit Question

entry long

Chart Q6-c 22-day and 13-day EMAs, channel, 12-26-9 MACD-lines and

MACD-Histogram, 2-day Force Index

Cover this chart with a sheet of paper and move it, one bar a time, from left to right Mark all entry and exit points and jot down a comment about each Once finished, review the Answers pages and award your-self points for each correctly identified exit or reentry point

We went long VIP near the fast EMA, in the area marked by an arrow

in October Use chart patterns and indicator signals to decide where

to take profits and where to reestablish longs Covering up the chart and opening it up one day at a time allows you to recreate some of the pressure of trading this seemingly exotic stock

Trade 7: International Business Machines IBM—Entry Question

Mark at least two trading signals on the weekly as well as the daily charts and make a trading decision at the right edge Answer on pages 188–189.

IBM, “Big Blue”, is widely held by institutions It is a charter member of the blue chip club It can swing, but it is unlikely to embark on a wild rally or suffer a bone-crashing decline like so many “cats and dogs.”

Chart Q7-a

Chart Q7-b

Trade 7: International Business Machines IBM—Exit Question

entry long

Chart Q7-c 22-day and 13-day EMAs, channel, 12-26-9 MACD-lines and

MACD-Histogram, 2-day Force Index

Cover this chart with a sheet of paper and move it one bar at a time, from left to right Identify entries, exits, and reentry points Mark each

of them and write a brief comment Do not go to the Answers pages until you have finished this work

We went long IBM near the fast EMA, in the area marked by an arrow

in October Keep tracking IBM one day at a time and find where to take profits and where to reestablish longs in this blue chip

Trade 8: Biovail Corporation BVF—Entry Question

Mark at least two trading signals on the weekly as well as the daily charts and make a trading decision at the right edge Do not turn this page or look at the Answers pages until you have documented your decision Answer on pages 192–193.

Chart Q8-a 26-week and 13-week EMAs, 12-26-9 lines and

MACD-Histogram

Chart Q8-b 22-day and 13-day EMAs, 12-26-9 lines and

MACD-Histogram, 2-day Force Index

Trade 8: Biovail Corporation BVF—Exit Question

entry long

Chart Q8-c 22-day and 13-day EMAs, channel, 12-26-9 MACD-lines and

MACD-Histogram, 2-day Force Index

Follow the usual pattern of covering this chart with a sheet of paper and moving it, one bar at a time, from left to right After each new bar opens up, try to identify entries, exits, and reentry points Mark each of them, write a brief comment, and when you finish working through the entire chart go to the Answers pages

We went long BVF when it was straddling its EMAs, in the area marked by an arrow in September Keep tracking BVF one day at a time and find where to take profits or reestablish longs

F O U R

LET’S TRADE:

ANSWERS

AND RATINGS

Trade 1: Oracle Corp ORCL—Entry Answer

A Fallen Angel Ready to Fly

A

C

B

Chart A1-a

When the bull market in technology stocks ended in 2000, it gave way

to a vicious bear market Many weak companies were delisted and went bankrupt, but the decline also swept down shares of many well-run com-panies Oracle is one of America’s great technological corporations, not some silly dot-com Still, its shares were taken down from a high of 46

in 2000 to a low of 10 in 2001, a nearly 80% decline

In early October 2001, weekly MACD-Histogram ticked up from a higher bottom, completing a bullish divergence against a much lower bottom in May, while prices traced a lower bottom The fast 13-week EMA turned flat Even though the longer-term 26-week EMA continued

to decline, a bullish divergence of MACD-Histogram allowed us to

many stocks went into a tailspin, but ORCL just flirted with the new lows for a few days before rallying During that rally, Force Index rose to its highest peak since June, confirming that this stock was completely sold out, bears had no more power, and the next move was likely to be up

Entry Ratings

WEEKLYCHART

A—Bullish divergence of MACD-Histogram: 1 point

B—Bullish divergence of MACD-lines: 1 point

C—Price below the EMA, in the undervalued zone: 1 point

DAILYCHART

A—Bullish divergence of MACD-Histogram: 1 point

B—Bullish divergence of Force Index: 1 point

C—Rising 13-day EMA, price in the value zone between fast and slow EMAs: 1 point

DECISION

Go long ORCL, with a stop below the month’s low, and observe money management rules: 3 points

PASSPOINT 6

C

B

A

Chart A1-b

Trade 1: Oracle Corp ORCL—Exit Answer

ORCL wasted little time before rallying above its moving averages The failure of the rally to reach the upper channel line lets you know that the upmove is not likely to be very strong The channel has been drawn

to contain the data during the decline in September Back then, declines used to punch the lower channel line Now, the failure of prices to reach the upper channel line shows that the rally is weak and profits should be taken quickly instead of waiting for more, which you would

do in a powerful rally

At point A, Force Index has completed a triple bearish divergence— three lower tops during three uplegs of a rally Prices still cannot reach the upper channel line, making this a good spot to take profits and employ your cash and attention elsewhere The divergence deepens

entry long

Chart A1-c

another buying opportunity, followed by a bearish divergence of MACD-Histogram in area E—a lower indicator peak during a higher price peak

A trader who oversleeps exit E gets one last chance in area F, where the EMAs scream to sell when they turn down Holding longs beyond that point is strictly for losers

Exit Ratings

DAILYCHARTA-1C

Sell longs in area A: 3 points

Sell longs in area B: 2 points

Sell longs in area C: 2 points

Reposition long in area D: 2 points

Sell longs in area E: 3 points

Sell longs in area F: 1 point

PASSPOINT 7

Why do some casinos give players bonuses for spending more time

at the tables? They know that the longer you stay, the more likely you are to leave your money in the casino The best trades are fairly short You identify an island of order in the ocean of disorder, put on a trade

to capitalize on it, quickly pocket your winnings, and go looking for another trade There is no ideal exit, but generally, a fast exit is better than a slow one

Trade 2: Sun Microsystems SUNW—Entry Answer

Sold Down to Rock Bottom

A

B

C

Chart A2-a

This is another “fallen angel”—a high flier blown out of the sky by the bear market in high-tech stocks Many poor souls were desperate enough

to buy SUNW at 65, but few buyers came when SUNW hit its 7.50 low The average height of a bar reflects the level of trading activity The bars were much taller above 60 than below 10, reflecting greater public interest in this stock near the top than near the bottom

At the right edge of the weekly chart, MACD-Histogram has com-pleted a bullish divergence A by ticking up from a much more shallow bottom in 2001 than it reached in 2000, even though prices are much lower Moreover, there is a rarely seen bullish divergence B of MACD-lines between the April and September bottoms In area C, prices are

low In area B, both MACD-Histogram and MACD-lines are rising, con-firming the strength of the bulls At the right edge of the chart, in area

C, the fast EMA is already rising, a bullish sign The slow EMA is still flat, with prices in the value area between the two EMAs

Entry Ratings

WEEKLYCHART

A—Bullish divergence of MACD-Histogram: 1 point

B—Bullish divergence of MACD-lines: 1 point

C—Price below the EMA, in the undervalued zone: 1 point

DAILYCHART

A—Bullish divergence of Force Index: 1 point

B—Rising MACD-Histogram and MACD-lines: 1 point

C—Rising 13-day EMA, price in the value zone between fast and slow EMAs: 1 point

DECISION

Go long SUNW, with a stop below the month’s low, and observe money management rules: 3 points

PASSPOINT 6

A

B C

Chart A2-b

Trade 2: Sun Microsystems SUNW—Exit Answer

As a rule, it pays to bracket the long moving average with an envelope

or a channel and use its walls as guidelines for taking profits One of the few proven behaviors of the market is its tendency to oscillate above and below value If we buy near the moving average, near value, then our goal is to sell when the stock or commodity becomes overvalued, near the upper channel line

The first selling opportunity in SUNW comes in area A, after the stock spends more than a week going nowhere, straddling its moving average

Do we want to give the trade more time to work out, or close it and look for another? If you trade a small account, it is important to free up your capital Even in a larger account, a stock that is going nowhere ties up more than capital It competes for the trader’s attention, taking his mind

A

entry long

Chart A2-c

stab above the upper channel line shows that the market is overvalued but cannot hold that level MACD-Histogram ticks down the next day, confirming that bulls are running out of breath

A quick stab into the area between the two EMAs around Thanks-giving, in area C, creates a buying opportunity since the weekly chart still is in an uptrend In area D, SUNW rises to a double top, while MACD-Histogram traces a bearish divergence and gives a strong sell signal Prices fail to reach their upper channel line, while MACD-Histogram diverges and even MACD-lines start to diverge There is no point in sticking around any longer; it is high time to take your winnings off the table and switch your attention to another stock

Exit Ratings

DAILYCHARTA-2C

Sell longs in area A: 3 points

Sell longs in area B: 5 points

Reposition long in area C: 3 points

Sell longs in area D: 3 points

PASSPOINT 8

Trade 3: Kroll Inc KROL—Entry Answer

KROL—On the Front Burner

This trade illustrates the importance of fundamental analysis and the value of personal networking Shortly after the September 11 disaster, a group of campers gathered for our regular monthly meeting in my Manhattan apartment We agreed that the investment/trading theme for the next several months was likely to be security and I asked one of our campers to come up with a complete list of all security-related firms I reviewed each of them, using the Triple Screen system KROL appeared to be the most attractive stock on the list, and I e-mailed my analysis to everyone who was at our meeting

Kroll, Inc is an international corporate security firm Its stock traded above 41 in 1999 before sliding below 5 in 2000 when it made a few unwise acquisitions In 2001 it appeared completely sold out and

list-B A C

D

Chart A3-a